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In the classic Dow Theory, if industrial companies are doing well making goods, and that is confirmed by transportation companies also doing well delivering them, then all is well for stocks and for the economy.

In a global economy, the critical part of the transportation sector is marine shipping. Unfortunately, the Philadelphia Stock Exchange marine shipping index, often known by its options root SHX, has broken down through short-term support (see Chart 1). For the past seven months, the sector lagged the broad stock market and that is one bit of evidence that economic recovery is not what people hoped it would be. Indeed, the index is still trading at levels seen in late 2008, a "nonconfirmation" of the strength in the industrial stocks.

Chart 1

PHLX Marine Shipping Index

Individual component stocks, such as
DryShipsDRYS -2.4766355140186915%DryShips Inc.U.S.: NasdaqUSD4.174
-0.106-2.4766355140186915%
/Date(1481307705628-0600)/
Volume (Delayed 15m)
:
3053040
P/E Ratio
N/AMarket Cap
4468320.34557343
Dividend Yield
N/ARev. per Employee
223142More quote details and news »DRYSinYour ValueYour ChangeShort position
(DRYS) also show rather bearish configurations. Although it nearly doubled off its June 2010 low by year's end, it has already shed a quarter of its value since its December peak (see Chart 2).

Chart 2

Dryships

Chart watchers will notice the ubiquitous head-and-shoulders pattern over the past two months, as well. Such a pattern tells a story about a stock transitioning from bullish to bearish and it points to a downside target, possibly another dozen percent below today's trading levels.

Chart 3

Nordic American Tanker Shipping

Technically, the stock smashed through a support level at 25.50, indicating that the bulls gave up. With a solid declining trend in place since April of last year, there is no indication that investors think this is a cheap stock.

Many peers, such as
FrontlineFRO -2.191958495460441%Frontline Ltd.U.S.: NYSEUSD7.541
-0.169-2.191958495460441%
/Date(1481307648077-0600)/
Volume (Delayed 15m)
:
1325729
P/E Ratio
7.018691588785047Market Cap
1205743725.14294
Dividend Yield
5.326231691078562% Rev. per Employee
5935280More quote details and news »FROinYour ValueYour ChangeShort position
(FRO) and
Diana ShippingDSX 5.296819787985866%Diana Shipping Inc.U.S.: NYSEUSD2.9799
0.14995.296819787985866%
/Date(1481307699654-0600)/
Volume (Delayed 15m)
:
349468
P/E Ratio
N/AMarket Cap
233605166.96579
Dividend Yield
N/ARev. per Employee
113825More quote details and news »DSXinYour ValueYour ChangeShort position
(DSX) show similar trends and pattern breakdowns. The point is that stocks of companies that ship goods overseas are not doing well and, keeping in mind that the stock market looks about nine months out into the future, that suggests demand for their services is not expected to be strong later this year.

This is corroborated somewhat by the path of the benchmark Baltic Dry Index (BDI), which measures the rates for hiring the giant ships that carry grain, coal and other goods across the globe. Since September, it has been cut in half, but that is not the real story. Since peaking in May 2008 during the height of the financial crisis, the index is down a staggering 88% and seemingly heading back towards its crisis lows (see Chart 4).

Chart 4

Baltic Dry Index

The BDI is considered to be a leading economic indicator because it measures demand for economic inputs and raw materials. As a technical analyst, I cannot address its implications directly fundamentally I can say that shipping stocks do not look attractive at this time. And Charles Dow would agree if shipping stocks are weak, then it is a good chance that weakness is lurking in other economically sensitive areas around the globe.

Getting Technical Mailbag:Send your questions on technical analysis to us at online.editors@barrons.com. We'll cover as many as we can, but please remember that we cannot give investment advice.

Michael Kahn, mutual fund co-manager, author of three books on technical analysis, former Chief Technical Analyst for BridgeNews and former director for the Market Technicians Association, also blogs at www.quicktakespro.com/blog.